Spring term school fees invoices are landing and uncertainty remains as to what will and won't incur VAT thanks to confused messages on how the Government's controversial new tax will be applied. Top schools tax consultant Kieran Smith, of Crowe UK, answers your most pressing questions.
2 December 2024
What is my school fees invoice likely to look like once VAT has been added?
In terms of cost, most schools will be passing on at least some of the VAT cost to parents as most schools cannot bear the full cost themselves. However, as parents are not in a position to recover the VAT charged, you may not see VAT separately identified. There is no legal requirement for a school to put VAT as an item on the fees invoice and so the bottom line may just be ‘inclusive of VAT’. Schools may separate out elements such as school lunches, and travel (to and from school) as these items will not be subject to VAT.
Can schools itemise costs and separate those that are VAT exempt?
Exemption does still apply to some items closely related to education. School lunches, for example, are exempt from VAT. There are schools that separate out such items on invoices and provided a separate charge is made for the lunch, VAT will not be charged. However, we know from working with schools that in some instances savings will be minimal and separating these costs creates extra complexity and administration, so some may continue to ‘bundle’ their whole offering together and charge VAT on the whole fee.
Following on from lunches - how about dinner when boarding?
The Government has been clear that items related to boarding will receive no exemption from VAT and so HMRC’s view is that meals provided before and after the school day to boarders are part of the boarding provision and therefore subject to VAT.
Will VAT be added to additional items appearing on the invoice?
There is no single answer to this question. It very much will depend on the extras that are charged for.
Will VAT be charged on transport to and from school?
No. Transport to and from school that is provided by the school will not be subject to VAT if charged for separately.
Will VAT be charged on instrument/music lessons?
Yes. Tuition of any kind provided by the school will be subject to VAT. If the music teacher has a contract with and invoices parents directly then VAT will not apply although the levels of admin involved in this kind of arrangement could make it prohibitive.
And after school clubs?
Again, extra tuition or coaching provided by the school will be subject to VAT (think ballet class, technology club or tennis coaching), but ‘pure childcare’ (where the children are supervised but not taught or coached) will not.
Will VAT be charged on the wraparound care?
Where the school offers ‘pure childcare’ (see previous answer) that is charged for at a separate price and under a separate agreement, this will remain exempt from VAT. Usually this takes the form of breakfast clubs and after school care which are supervised but not educational in purpose.
Will VAT be charged on school trips?
No - school trips will be either VAT exempt where there is an educational element or subject to a scheme that only applies VAT on any profit retained by the school. Most schools sell trips at cost so no VAT would be accounted for on these trips.
Will VAT be added to examination entrance fees?
No, examination fees remain VAT exempt where separately charged.
Will fees paid in advance have VAT imposed on them?
Possibly – schools offered a variety of different agreements to parents for advance payments and so this will be dependent on the agreement operated by the school and also HMRC’s eventual policy in this area. HMRC has indicated that it will challenge fees in advance where fees are not ‘set’, but there is currently no full / formal policy on this matter.
My child has SEN. Will we have to pay VAT?
If the parent is paying the school fees, the likely answer here is yes. The reason is that the conditions for getting exemption are difficult to meet, as an EHCP is required, and it also appears that you would have to demonstrate that the child’s needs cannot be met by the state sector (either in a state school or the local authority paying for a private school place). If additional learning support if paid for separately by parents, this too will be subject to VAT. If additional care (non-educational) is provided to the student under a separate contract and for a separate fee, this may be treated as VAT exempt.
Will military/diplomatic families who receive the Continuity of Education Allowance receive an exemption from paying VAT on school fees?
There is no exemption for forces personnel, however the Continuation of Education Allowance has been increased by just over 12 per cent from 1st December 2024 to pay towards the extra VAT cost.
My child attends a private school nursery. If we delay starting reception by a year, will we be charged VAT?
This would be unlikely. HMRC have stated that providing 90% of a nursery class is below compulsory school age, fees for nursery settings at private schools will continue to be exempt from VAT.
Kieran Smith is a Partner at Crowe U.K. LLP with over 20 years’ experience in both HM Revenue & Customs and the professional practice. Kieran’s advice for independent schools ranges from dealing with large property transactions and building projects, to applying for rulings in relation to transactions not currently covered by HMRC’s guidance. Kieran has also assisted clients in the sector with modelling exercises to help schools to plan for the changes ahead.
Crowe U.K. LLP is the leading advisor to independent schools. We audit a significant amount of the sector's income and act for a high number of schools providing VAT and other services. We are involved with the sector through seminars, briefings, benchmarking and consultancy meaning that we really understand the challenges faced by independent schools.